Is The Big Beautiful Bill a Game Changer for Commercial Real Estate? The Bill is largely a continuation of the tax cuts that were passed in 2017, with several expansions. The largest impacts on CRE stem from 3 major categories, how commercial real estate is taxed, how it is traded, and what kinds of developments and projects are pursued. Bonus Depreciation The newest version of the bill brings back 100% bonus depreciation. This provision had been phasing out, with owners only able to deduct 40% in 2025. If an owner wanted to conduct a $1 million renovation to an apartment complex in 2025, they could only deduct $400,000. With bonus depreciation back we will see more improvements that incentivize better buildings and a higher quality of life for users of commercial real estate, and more flexibility for investors that use a value-add strategy. This is a cornerstone of the tax bill for the CRE world and remains intact in both the House and Senate versions. Deductions First, the new legislation looks to make the QBI deduction permanent. It’s an “above-the-line” deduction, meaning you can take it whether you itemize or take the standard deduction. The current level is 20%, effectively making 20% of the owners’ properties tax-free. This increases the return owners see on their investments, while also supporting the income of businesses that lease and utilize commercial real estate. It will naturally free up capital for new development, business expansion, new hiring and property upgrades. The House bill actually proposes expanding the deduction to 23%. Second, an increase to the SALT deduction cap. The 2017 legislation capped this at $10,000, increasing the tax burden for many investors in the high-tax states. The new proposals increase this to $40,000, alleviating some of the pressure from the “double taxation” these investors are experiencing. This will free up capital for investors operating in the places that have been hardest hit by the pandemic, helping aid the rejuvenation of some of America’s most iconic cities and lowers the incentive for high-income residents to leave places like New York and Los Angeles. The Senate bill makes this cap increase temporary, but the House bill makes the increase permanent. Third, eliminate and replace the Pease Limitation. By permanently repealing Pease, the bill ensures that high-income individuals continue to get the full value of their itemized deductions. If Pease were to return, a $100,000 charitable donation would suddenly have less tax-saving power. This lowers the incentive to utilize deductions that are in place as an effort to incentivize certain financial behavior. Both bills replace the policy with a simpler and less costly limit on deductions. Opportunity Zones and Industrial Focus The bill proposes to expand and make permanent the opportunity zones policy from the 2017 bill. The new bill introduces a Qualified Rural Opportunity Fund (QROF). Investors who put money into a QROF receive a 30% basis step-up on their deferred capital gains after just five years, which is triple the standard 10% step-up for a regular opportunity zone investment. The new legislation also allows developers in rural zones to access the tax benefits of renovations at a lower threshold, lowering the financial requirement to qualify from 100% of investment cost to just 50% in rural opportunity zones. The bill also creates an entirely new category of assets called Qualified Production Properties. This provision states that when building a manufacturing plant or modern warehouse you can deduct the entire cost of the project immediately. This will incentivize industrial development and renovations that will help keep the United States as a leader in advanced manufacturing, creating more jobs in the industry and ensuring the manufacturing jobs that are in the U.S. are among the highest-paying and most productive in the world. This policy would do more to grow American manufacturing than any trade policy would. Other Important Factors 1031 Exchange Rules Preserving 1031 exchanges allows investors to shift strategies and transact freely in the marketplace. The missed economic activity from removing this provision would have massive implications for the government’s tax revenues. Estate Taxes This bill would raise the floor on the estate tax to $15 million. This promotes stability in ownership and allows them to continue investing in and improving their assets, rather than just preparing for a fire sale. The Low-Income Housing Tax Credit The proposal permanently increases the annual 9% Low-Income Housing Credit allocations to states and lowers the financing threshold for 4% credit deals. This makes it financially easier for developers to build affordable rental housing in any city across the country. Spending Provisions Beyond broad tax cuts, the bill’s spending provisions create highly targeted real estate impacts. The largest initiative dedicates nearly $47 billion to border security construction, fueling a concentrated real estate boom for industrial and rental properties in border states while having a negligible direct impact elsewhere. The bill also invests $12.5 billion to modernize the nation’s FAA air traffic control systems. This upgrade boosts efficiency at major airports, directly increasing the value and long-term viability of the critical logistics properties.
The U.S. commercial real estate sector is showing signs of improving stability as of July 2025, with particular resilience in industrial, multifamily and data center assets. Despite uncertainty stemming from trade policy and economic headwinds, leasing activity and investment interest are holding firm within select asset classes. Industrial real estate remains the strongest corner of the market, though signs of normalization have emerged. Q2 2025 industrial deal volume held steady at approximately $22.9 billion, flat compared to Q2 2024, after two quarters of intense growth. Vacancy rates in warehouses have climbed to around 7.1%, the highest reading since 2014. Oversupply from the pandemic era paired with cautious tenant behavior due to tariff-driven trade uncertainty has muted leasing activity. Speculative warehouse development has slowed, with just 60 million square feet completed in Q2, the lowest since early 2019. Yet demand for build-to-suit industrial facilities is resurging. Prologis launched over $900 million in new industrial projects in Q2, nearly triple last year’s pace, with 65% of those spaces pre-leased and full-year commitments raised to between $2.25 and $2.75 billion. Similarly, Brookfield closed a $428 million deal involving 53 older, high-occupancy warehouses between Houston, Dallas, Nashville and Atlanta, aiming to raise rents selectively as leases expire. Multifamily investments remain strong heading into mid 2025. With household formation increasing and homeownership costs rising, renters continue to fuel demand. Rents are stabilizing and occupancy rates are improving despite elevated interest rates and robust new supply. Analysts describe this sector as the most preferred among CRE investors this year. Read Also: https://rentmagazine.com/ai-and-robotics-reshape-commercial-real-estate-operations/ The office sector remains bifurcated. Lower-tier assets continue struggling while Class A office buildings in major urban cores such as Manhattan, Washington D.C. and Miami are enjoying steady leasing demand. Leasing tours and deal inquiries remain elevated for high-end office space despite broader economic uncertainty. CBRE anticipates vacancy stabilization and modest upticks in occupancy and rents in the most attractive office segments. Data center properties continue to benefit from surging demand tied to cloud services, AI infrastructure and enterprise IT growth. Supply remains insufficient to match demand, making these assets a standout within CRE portfolios. AI expansion is fueling consumption of high-density computing, triggering new data center construction, though developers are grappling with energy, connectivity and land constraints. AI and proptech tools are now widely recognized as core to CRE decision-making. From underwriting and predictive analytics to tenant management and energy optimization, AI is reshaping workflow across asset classes. A recent Morgan Stanley survey finds 32% of REITs increasing AI exposure, with nearly 37% of CRE tasks estimated to be automated, boosting efficiency and risk mitigation. AI-driven site selection tools are enabling developers to pinpoint locations for data centers and industrial assets more accurately by layering logistics, economics, labor and infrastructure data. Leading firms now view AI not just as a novelty but as a core competency shaping real estate strategy. The outlook for major asset classes continues to diverge. Industrial real estate is stabilizing from pandemic-era overbuilding but remains healthy for build-to-suit developments. Multifamily remains in high demand with strong rental fundamentals. Class A office assets in top-tier urban markets show resilience. Data centers continue to outperform due to persistent undersupply and rising digital infrastructure needs. Overall, commercial real estate is transitioning into a more balanced era. Experts foresee modest growth in investment volume and general stabilization across sectors in the second half of 2025, even if interest rates remain elevated. Challenges remain—from global trade uncertainty and tariff risks to inflation and supply imbalances—but greater predictability in underwriting and expanded use of technology are helping investors navigate an evolving landscape. July 2025 finds U.S. commercial real estate on firmer footing. Industrial assets are adjusting to oversupply through build-to-suit demand. Multifamily continues to attract investor interest. Class A offices in key cities retain appeal, and data centers are thriving under infrastructure constraints and digital growth. Across the board, AI and automation are helping firms manage risk, optimize returns and respond to changing market dynamics.
Late last year, many were predicting a new growth cycle for the U.S. Industrial Commercial Real Estate (CRE) market. For example, in December when CBRE published its 2025 U.S. Real Estate Market Outlook, they predicted that the U.S. industrial market would enter a new cycle in 2025 with a return to pre-pandemic demand drivers. They said industrial occupiers would start focusing on longer-term strategies to improve warehouse efficiency and ensure supply chain resiliency. And that demand for newly constructed space would drive up the vacancy rate of older buildings. At that time, few anticipated the level of uncertainty that would ensue in the wake of changing U.S. economic and trade policies. As of May 2025, the U.S. and China had paused their retaliatory tariffs for 90-days, leaving a 30% levy that the U.S. is now imposing on Chinese goods. However, businesses and investors must contend with uncertainty about whether the truce will last. But this situation is only part of a broader scenario in which dozens of other countries await news from the White House regarding revised tariff rates that will follow the current 90-day pause. The result is already reshaping the global supply chain and logistic networks, starting with the slowing flow of goods into the U.S. The Port of Los Angeles, for instance, has seen a 35% drop in arriving cargo vessels as of the 2nd week in May 2025 vs. the same week a year earlier. The disruption goes beyond the here and now; the inability to plan into the months ahead makes the situation at the ports a guessing game for labor and planning, including the scheduling of dockworkers, heavy equipment operators, and trucking services. According to Gene Seroka, executive director of the Port of Los Angeles, “As far as forecasting, with the whipsaw effect of information that’s been coming out of Washington — the reprieve of 90 days, the changes with electronics and auto parts, and maybe some retail in the middle of that — it’s really hard to forecast.” As disruptions trigger a ripple effect across industries worldwide, the global supply chain is positioning itself for major transformation. With markets in flux, the National Association for Industrial and Office Parks (NAIOP) reports that many companies are pausing investment and deferring major decisions, including whether and where to lease industrial space. At this point, experienced CRE industry professionals must rely on their knowledge — guided by the cyclical history of CRE, day-by-day data analysis, the latest intelligence, and some instinct. Let’s take a look at just some of the ways this may all unfold — and what it could mean specifically for industrial CRE. Industrial Leasing and Tenant Demand The industrial leasing market has been steady but cautious as tenants digest the tariff news. Key leasing trends include: Lease renewal over expansion — Many companies have delayed new warehouse expansions or relocations, opting instead to renew existing space until tariff outcomes are clear. CBRE recently reported that industrial construction slowed while industrial leasing held steady at about 180M square feet in Q1 of 2025. Rise of third-party logistics (3PL) demand — Amid trade policy uncertainty, CBRE sees some industrial occupiers outsourcing to 3PL providers. As more businesses rely on them, these providers will, in turn, take on a larger share of leasing activity. Vacancy tick-up — Even with solid leasing deals, overall vacancy has crept upward — due in part to new supply hitting the market. CBRE reported a 20 basis-point rise in national vacancy to about 6.3% in Q1 2025 — the highest level since 2014. Potentially slower economic growth would also weaken fundamentals across property types, leading to higher vacancy rates, and be a headwind for investment activity. However, this may be partially offset by lower long-term interest rates and cheaper debt costs. Modest net absorption — With some tenants on hold, net absorption is subdued. For example, CBRE cites just 23.3 million square foot of positive net absorption in Q1 2025, which is modest compared to earlier peaks. In summary, leasing activity so far in 2025 is underpinned by tentative demand: occupiers are holding off on major expansions, while 3PLs and domestic distributors lead tenant activity in the interim. Construction Activity and Costs Tariffs are also crimping the development pipeline and construction budgets for Industrial, with the result being a rise in material prices and project delays: Higher material costs — New levies on steel, lumber, equipment and other inputs will increase construction expenses. CBRE estimates that the tariffs announced in April 2025 could inflate overall commercial construction costs by roughly 5%. Projects on hold and a shrinking pipeline — Faced with cost uncertainty, many developers are pausing or scaling back new projects. Groundbreaking of some developments may be put off as builders re-evaluate feasibility under higher-cost scenarios. JLL notes that U.S. industrial projects under construction totaled about 253 million square foot by Q1 — roughly 30% less than a year earlier and the lowest pipeline level since 2015. According to CBRE, in Q1 alone just 64.6M square foot of new industrial space was completed, the weakest quarterly delivery tally since 2018. In many markets, construction starts are near decade-lows as speculative projects are deferred. Supply chain delays — Tariffs and trade disruptions are also affecting the supply chain for construction itself. The NAIOP Research Foundation notes that companies are carrying higher inventories of building materials to buffer tariffs, but near-term shortages or shipping delays appear possible. For example, surcharges on Chinese-built ships and other fees have effectively reduced freight capacity to U.S. ports, which could slow shipments of steel and equipment and delay project timelines. Overall, industrial remains the strongest corner of the market. The consensus is that industrial and multifamily will lead any recovery in investment activity. However, many are factoring in a premium for uncertainty; one recent summary noted that tariffs were already “reducing the strength” of CBRE’s incoming business pipeline. In practice, transaction volumes have slowed slightly in Q1-Q2 as buyers and sellers price in trade risk. Still, global allocators with limited U.S. exposure are actively looking to enter the industrial sector. Outlook: Reshoring and Opportunities Ecommerce and manufacturing reshoring continues to underpin demand for warehouses and factories. Key drivers for this rebound include: Reshoring of manufacturing — A number of companies are moving production back to North America to avoid high tariffs and improve supply resilience. New factory and processing facility needs (like semiconductors, electric vehicles [EVs]), pharma and food processing) will drive fresh demand for industrial land and buildings. Nearshoring and trade deals — Even before the 2025 tariffs, firms were planning to source more regionally. A 2023 Accenture study found that by 2026 about 65% of companies intend to buy key inputs from regional suppliers, a significant increase from the current 38%. This shift reflects a broader trend of companies seeking to become more resilient to supply chain disruptions by diversifying their sourcing and production. Technological and Green transformations — With competition growing in industrial CRE, some landlords are repositioning assets with sustainability upgrades or flexible layouts. Energy-efficient space that provides automation, robotics, etc., remains attractive to cautious tenants during economic uncertainty. Conclusion The current uncertainty around tariffs has produced some challenges for industrial CRE — the possibilities of slow leasing growth, combined with rising construction costs, is adding risk to underwriting. However, there may still be reason for optimism. When the tariff situation is resolved, the underlying fundamentals — low vacancy in core regions, rising regional manufacturing, and e-commerce growth — are likely to lead to growth in the industrial market.
Leveraging artificial intelligence Trends in business is not new. Using machine learning (ML) and language processing across a range of functional areas and skill sets has been in practice for decades’ However, that traditional scope has had limitations, leaving more creative disciplines to human thinking. The emergence of generative AI has shifted our thinking—with use cases demonstrating that the automation of creativity and imagination could be a reality sooner than may have been anticipated . READ the rest of the story here: https://www2.deloitte.com/us/en/insights/industry/financial-services/generative-ai-in-real-estate-benefits.html
Commercial Real Estate Terms You Need to Know Buying or Leasing Commercial Real Estate is one of the biggest expenses incurred by your business. When leasing or buying commercial real estate, the vocabulary can be intimidating and confusing at first. Whether you need a small retail shop or a large warehouse, a basic understanding of common Commercial Real Estate industry terms used will help you better understand the process. If you are ready to dive into buying or leasing commercial real estate, I’ve outlined key commercial real estate terms that you’ll need to know. Becoming familiar with some basic terminology will untangle the confusing process and help you make informed decisions. First things first, what is Commercial Real Estate? Commercial Real Estate includes all buying, selling, and leasing of any Commercial property that is used or zoned for purposes such as Retail, Industrial, Office, Medical, Multifamily of 4 units or more, and Commercial Land. What are the different types of Leases? FSG- Full-Service Gross Lease: A Full-Service Gross lease includes the base rent and other building operating expenses, including janitorial service, utilities, maintenance and repairs, building insurance and property tax, and common area maintenance (CAM). None of the additional services are charged as additional rent. You pay a base rent amount only. MG – Modified Gross Lease: A Modified Gross lease is essentially the same as a FSG lease where the tenant pays base rent, but with an MG lease, the tenant also pays additional costs associated with the property such as: janitorial, a utility bill(s), or garbage. NNN – Triple Net Lease: A Triple Net Lease (NNN) is an agreement where the tenant pays their proportionate share of building expenses called Nets and include real estate taxes, building insurance, and Common Area Maintenance (CAM). The tenant pays for the above named monthly NNN expenses, plus base rent, plus utilities. Load factor: This is a calculation used in buildings that have common areas such as hallways, bathrooms, entry, common conference rooms to determine how much of the building these areas occupy. That percentage of the building is called a load factor. In buildings where tenants also use a common area, there is a load factor added onto the square footage of space they occupy. Commonly, 10% - 20% is added on to the “Usable Square Feet” (or actual) square footage to come up with a “Rentable Square Feet” (Usable + Load Factor). Load factors are not used in buildings that don’t have a common area such as Retail and Industrial spaces, but is more often found in Office or Medical space. The formula is: Usable Square feet x Load Factor = Rentable Square Feet For example, if a tenant measures 1,000 SF of space they are renting, but the load factor in the building is 15%, the tenant will pay rent for 1,150 SF (1,000 USF *1.15 = 1,150 RSF) to include their proportionate share of the common areas of the building. TI - Tenant Improvement: TI (tenant improvements) is the customized alterations made to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant. Tenant improvements (TI’s) are negotiated by your broker to determine how much the Landlord will pay or contribute, and how much the tenant will pay or contribute towards the TI. There are many variables that will determine how much the Landlord will pay including Landlord financial ability, asset type, lease length, as well as other factors the tenant is attempting to negotiate on such as free rent or reduced rent. 1st vs 2nd generation space: A 1st generation space is either a space that has not been built out for the specialty use, or is an empty shell without walls, drop ceilings, flooring, HVAC, electrical, or plumbing. 2nd generation space, or “2nd gen”, is commonly used to describe specialty use TI that is already built out by a previous tenant such as a restaurant, hair salon, or medical space. For tenants on a budget, it is often cost prohibitive to build out a specialty use TI into a 1st generation space, and is less expensive to find a 2nd generation space for specialty use tenants which only requires cosmetic improvements. Raw shell vs Vanilla shell: The term Raw shell refers to a space that consists of a concrete or dirt floor, wall studs but no insulation or sheet rock, exposed ceiling with or without electrical brought into the space, and often without plumbing or HVAC. This is often found in new construction buildings. The term Vanilla Shell refers a basic structure built out in the rental space. This typically includes sheetrock and taped walls ready to paint, electrical panel, a concrete floor, construction lighting, HVAC without duct work, stubbed plumbing but no fixtures. NOI: Net operating income (NOI) is a calculation used to analyze the profitability of income-generating Commercial real estate investments. NOI equals revenue minus all operating expenses that are not reimbursed to the landlord. CAP rate: A Cap rate (or Capitalization Rate), is a percentage measurement used to compare the rates of return on commercial real estate properties. Cap rates are calculated by dividing the property’s net operating income (NOI) from its property asset value. Parking Ratio: A parking ratio is the total ratio of the rentable square footage of a building to the total number of parking spots of that building. This ratio is a calculation of parking spots per 1,000 square feet of space leased. For example, a parking ratio of 1:1000 (one per thousand), this means that you will be allotted 1 parking stall for every 1,000 SF of space leased. In the example of a parking ratio of 3:1000, you would lease 1,000 SF of space, and you would be allotted 3 parking spaces. Vacancy Rate: The vacancy rate is the percentage of all available square footage in a Commercial rental property that is vacant or unoccupied at a particular time. On a larger scale, vacancy rates are used to measure the health of a rental market. Overall Vacancy rates of 10 – 12% indicates a healthy balance of Tenants looking for space, and vacant space available. If rates are over 12%, it becomes a Tenant market with more space available than tenants. Tenants often have more negotiating power in this environment. Vacancy rates under 10% are a Landlord’s market, where there are fewer options to lease than there are tenants. Landlords often have a negotiating advantage when vacancies are in the single digit range. Class A, B, C Buildings – Although there is not a clearly defined differentiation between A, B, and C properties, and it is rather subjective, the following is a lose delineation between the three types. Class A buildings are considered a top-tier property. These properties are typically newly constructed and/or well maintained, are multiple stories high with a retail component, and command top dollar whether leasing or purchasing. Class B buildings are a step-down from Class A buildings. They are typically older or and may have once been a Class A property but now have older surface materials. They could also be a smaller new construction building (under 4 stories) and without a retail component. Class C buildings are typically older, will show visible signs of deterioration and deferred maintenance. Melissa Johnson/KW Commercial is committed to providing our clients with world-class service, experience, and expert industry insights to help generate substantial returns. Our team’s collective success over the years has been built on this formula. We look forward to the opportunity to help you reach your commercial real estate buying, selling, or leasing goals.
Key takeaways: Monetary policy continues to loosen, we are in the relatively early stages of a rate-cutting cycle, and inflation has eased down to a more reasonable and manageable level. Recently established CRE trends including the growth of the digital economy, the work-from-home trend, the greening of CRE, and the rehabbing and repurposing of retail space will continue. There are long-term CRE investment opportunities in multifamily, data centers, industrial real estate and senior housing. There is an emerging opportunity in hospitality that should be viable through 2025, but is more cyclical in nature.
Across industries, the last year has been challenging for U.S. companies. Uncertainty around the election, steep inflation, and high interest rates have introduced instability and financial pressures that have taken their toll on the business landscape. As 2025 nears, things appear to be changing: Interest rate cuts are on the horizon, while the end of the election cycle may introduce greater market stability heading into the new year. Forecasted market stability doesn’t mean the new year will be without its challenges. A new administration and shifting market pressures mean real estate and construction leaders must act now to take advantage of new opportunities and confront persistent obstacles. Looking for the right information to prepare yourself for the year ahead? Read on to uncover our predictions for real estate and construction in 2025. BDO’s 2025 Real Estate and Construction Predictions
Is The Big Beautiful Bill a Game Changer for Commercial Real Estate? The Bill is largely a continuation of the tax cuts that were passed in 2017, with several expansions. The largest impacts on CRE stem from 3 major categories, how commercial real estate is taxed, how it is traded, and what kinds of developments and projects are pursued. Bonus Depreciation The newest version of the bill brings back 100% bonus depreciation. This provision had been phasing out, with owners only able to deduct 40% in 2025. If an owner wanted to conduct a $1 million renovation to an apartment complex in 2025, they could only deduct $400,000. With bonus depreciation back we will see more improvements that incentivize better buildings and a higher quality of life for users of commercial real estate, and more flexibility for investors that use a value-add strategy. This is a cornerstone of the tax bill for the CRE world and remains intact in both the House and Senate versions. Deductions First, the new legislation looks to make the QBI deduction permanent. It’s an “above-the-line” deduction, meaning you can take it whether you itemize or take the standard deduction. The current level is 20%, effectively making 20% of the owners’ properties tax-free. This increases the return owners see on their investments, while also supporting the income of businesses that lease and utilize commercial real estate. It will naturally free up capital for new development, business expansion, new hiring and property upgrades. The House bill actually proposes expanding the deduction to 23%. Second, an increase to the SALT deduction cap. The 2017 legislation capped this at $10,000, increasing the tax burden for many investors in the high-tax states. The new proposals increase this to $40,000, alleviating some of the pressure from the “double taxation” these investors are experiencing. This will free up capital for investors operating in the places that have been hardest hit by the pandemic, helping aid the rejuvenation of some of America’s most iconic cities and lowers the incentive for high-income residents to leave places like New York and Los Angeles. The Senate bill makes this cap increase temporary, but the House bill makes the increase permanent. Third, eliminate and replace the Pease Limitation. By permanently repealing Pease, the bill ensures that high-income individuals continue to get the full value of their itemized deductions. If Pease were to return, a $100,000 charitable donation would suddenly have less tax-saving power. This lowers the incentive to utilize deductions that are in place as an effort to incentivize certain financial behavior. Both bills replace the policy with a simpler and less costly limit on deductions. Opportunity Zones and Industrial Focus The bill proposes to expand and make permanent the opportunity zones policy from the 2017 bill. The new bill introduces a Qualified Rural Opportunity Fund (QROF). Investors who put money into a QROF receive a 30% basis step-up on their deferred capital gains after just five years, which is triple the standard 10% step-up for a regular opportunity zone investment. The new legislation also allows developers in rural zones to access the tax benefits of renovations at a lower threshold, lowering the financial requirement to qualify from 100% of investment cost to just 50% in rural opportunity zones. The bill also creates an entirely new category of assets called Qualified Production Properties. This provision states that when building a manufacturing plant or modern warehouse you can deduct the entire cost of the project immediately. This will incentivize industrial development and renovations that will help keep the United States as a leader in advanced manufacturing, creating more jobs in the industry and ensuring the manufacturing jobs that are in the U.S. are among the highest-paying and most productive in the world. This policy would do more to grow American manufacturing than any trade policy would. Other Important Factors 1031 Exchange Rules Preserving 1031 exchanges allows investors to shift strategies and transact freely in the marketplace. The missed economic activity from removing this provision would have massive implications for the government’s tax revenues. Estate Taxes This bill would raise the floor on the estate tax to $15 million. This promotes stability in ownership and allows them to continue investing in and improving their assets, rather than just preparing for a fire sale. The Low-Income Housing Tax Credit The proposal permanently increases the annual 9% Low-Income Housing Credit allocations to states and lowers the financing threshold for 4% credit deals. This makes it financially easier for developers to build affordable rental housing in any city across the country. Spending Provisions Beyond broad tax cuts, the bill’s spending provisions create highly targeted real estate impacts. The largest initiative dedicates nearly $47 billion to border security construction, fueling a concentrated real estate boom for industrial and rental properties in border states while having a negligible direct impact elsewhere. The bill also invests $12.5 billion to modernize the nation’s FAA air traffic control systems. This upgrade boosts efficiency at major airports, directly increasing the value and long-term viability of the critical logistics properties.
The U.S. commercial real estate sector is showing signs of improving stability as of July 2025, with particular resilience in industrial, multifamily and data center assets. Despite uncertainty stemming from trade policy and economic headwinds, leasing activity and investment interest are holding firm within select asset classes. Industrial real estate remains the strongest corner of the market, though signs of normalization have emerged. Q2 2025 industrial deal volume held steady at approximately $22.9 billion, flat compared to Q2 2024, after two quarters of intense growth. Vacancy rates in warehouses have climbed to around 7.1%, the highest reading since 2014. Oversupply from the pandemic era paired with cautious tenant behavior due to tariff-driven trade uncertainty has muted leasing activity. Speculative warehouse development has slowed, with just 60 million square feet completed in Q2, the lowest since early 2019. Yet demand for build-to-suit industrial facilities is resurging. Prologis launched over $900 million in new industrial projects in Q2, nearly triple last year’s pace, with 65% of those spaces pre-leased and full-year commitments raised to between $2.25 and $2.75 billion. Similarly, Brookfield closed a $428 million deal involving 53 older, high-occupancy warehouses between Houston, Dallas, Nashville and Atlanta, aiming to raise rents selectively as leases expire. Multifamily investments remain strong heading into mid 2025. With household formation increasing and homeownership costs rising, renters continue to fuel demand. Rents are stabilizing and occupancy rates are improving despite elevated interest rates and robust new supply. Analysts describe this sector as the most preferred among CRE investors this year. Read Also: https://rentmagazine.com/ai-and-robotics-reshape-commercial-real-estate-operations/ The office sector remains bifurcated. Lower-tier assets continue struggling while Class A office buildings in major urban cores such as Manhattan, Washington D.C. and Miami are enjoying steady leasing demand. Leasing tours and deal inquiries remain elevated for high-end office space despite broader economic uncertainty. CBRE anticipates vacancy stabilization and modest upticks in occupancy and rents in the most attractive office segments. Data center properties continue to benefit from surging demand tied to cloud services, AI infrastructure and enterprise IT growth. Supply remains insufficient to match demand, making these assets a standout within CRE portfolios. AI expansion is fueling consumption of high-density computing, triggering new data center construction, though developers are grappling with energy, connectivity and land constraints. AI and proptech tools are now widely recognized as core to CRE decision-making. From underwriting and predictive analytics to tenant management and energy optimization, AI is reshaping workflow across asset classes. A recent Morgan Stanley survey finds 32% of REITs increasing AI exposure, with nearly 37% of CRE tasks estimated to be automated, boosting efficiency and risk mitigation. AI-driven site selection tools are enabling developers to pinpoint locations for data centers and industrial assets more accurately by layering logistics, economics, labor and infrastructure data. Leading firms now view AI not just as a novelty but as a core competency shaping real estate strategy. The outlook for major asset classes continues to diverge. Industrial real estate is stabilizing from pandemic-era overbuilding but remains healthy for build-to-suit developments. Multifamily remains in high demand with strong rental fundamentals. Class A office assets in top-tier urban markets show resilience. Data centers continue to outperform due to persistent undersupply and rising digital infrastructure needs. Overall, commercial real estate is transitioning into a more balanced era. Experts foresee modest growth in investment volume and general stabilization across sectors in the second half of 2025, even if interest rates remain elevated. Challenges remain—from global trade uncertainty and tariff risks to inflation and supply imbalances—but greater predictability in underwriting and expanded use of technology are helping investors navigate an evolving landscape. July 2025 finds U.S. commercial real estate on firmer footing. Industrial assets are adjusting to oversupply through build-to-suit demand. Multifamily continues to attract investor interest. Class A offices in key cities retain appeal, and data centers are thriving under infrastructure constraints and digital growth. Across the board, AI and automation are helping firms manage risk, optimize returns and respond to changing market dynamics.
Late last year, many were predicting a new growth cycle for the U.S. Industrial Commercial Real Estate (CRE) market. For example, in December when CBRE published its 2025 U.S. Real Estate Market Outlook, they predicted that the U.S. industrial market would enter a new cycle in 2025 with a return to pre-pandemic demand drivers. They said industrial occupiers would start focusing on longer-term strategies to improve warehouse efficiency and ensure supply chain resiliency. And that demand for newly constructed space would drive up the vacancy rate of older buildings. At that time, few anticipated the level of uncertainty that would ensue in the wake of changing U.S. economic and trade policies. As of May 2025, the U.S. and China had paused their retaliatory tariffs for 90-days, leaving a 30% levy that the U.S. is now imposing on Chinese goods. However, businesses and investors must contend with uncertainty about whether the truce will last. But this situation is only part of a broader scenario in which dozens of other countries await news from the White House regarding revised tariff rates that will follow the current 90-day pause. The result is already reshaping the global supply chain and logistic networks, starting with the slowing flow of goods into the U.S. The Port of Los Angeles, for instance, has seen a 35% drop in arriving cargo vessels as of the 2nd week in May 2025 vs. the same week a year earlier. The disruption goes beyond the here and now; the inability to plan into the months ahead makes the situation at the ports a guessing game for labor and planning, including the scheduling of dockworkers, heavy equipment operators, and trucking services. According to Gene Seroka, executive director of the Port of Los Angeles, “As far as forecasting, with the whipsaw effect of information that’s been coming out of Washington — the reprieve of 90 days, the changes with electronics and auto parts, and maybe some retail in the middle of that — it’s really hard to forecast.” As disruptions trigger a ripple effect across industries worldwide, the global supply chain is positioning itself for major transformation. With markets in flux, the National Association for Industrial and Office Parks (NAIOP) reports that many companies are pausing investment and deferring major decisions, including whether and where to lease industrial space. At this point, experienced CRE industry professionals must rely on their knowledge — guided by the cyclical history of CRE, day-by-day data analysis, the latest intelligence, and some instinct. Let’s take a look at just some of the ways this may all unfold — and what it could mean specifically for industrial CRE. Industrial Leasing and Tenant Demand The industrial leasing market has been steady but cautious as tenants digest the tariff news. Key leasing trends include: Lease renewal over expansion — Many companies have delayed new warehouse expansions or relocations, opting instead to renew existing space until tariff outcomes are clear. CBRE recently reported that industrial construction slowed while industrial leasing held steady at about 180M square feet in Q1 of 2025. Rise of third-party logistics (3PL) demand — Amid trade policy uncertainty, CBRE sees some industrial occupiers outsourcing to 3PL providers. As more businesses rely on them, these providers will, in turn, take on a larger share of leasing activity. Vacancy tick-up — Even with solid leasing deals, overall vacancy has crept upward — due in part to new supply hitting the market. CBRE reported a 20 basis-point rise in national vacancy to about 6.3% in Q1 2025 — the highest level since 2014. Potentially slower economic growth would also weaken fundamentals across property types, leading to higher vacancy rates, and be a headwind for investment activity. However, this may be partially offset by lower long-term interest rates and cheaper debt costs. Modest net absorption — With some tenants on hold, net absorption is subdued. For example, CBRE cites just 23.3 million square foot of positive net absorption in Q1 2025, which is modest compared to earlier peaks. In summary, leasing activity so far in 2025 is underpinned by tentative demand: occupiers are holding off on major expansions, while 3PLs and domestic distributors lead tenant activity in the interim. Construction Activity and Costs Tariffs are also crimping the development pipeline and construction budgets for Industrial, with the result being a rise in material prices and project delays: Higher material costs — New levies on steel, lumber, equipment and other inputs will increase construction expenses. CBRE estimates that the tariffs announced in April 2025 could inflate overall commercial construction costs by roughly 5%. Projects on hold and a shrinking pipeline — Faced with cost uncertainty, many developers are pausing or scaling back new projects. Groundbreaking of some developments may be put off as builders re-evaluate feasibility under higher-cost scenarios. JLL notes that U.S. industrial projects under construction totaled about 253 million square foot by Q1 — roughly 30% less than a year earlier and the lowest pipeline level since 2015. According to CBRE, in Q1 alone just 64.6M square foot of new industrial space was completed, the weakest quarterly delivery tally since 2018. In many markets, construction starts are near decade-lows as speculative projects are deferred. Supply chain delays — Tariffs and trade disruptions are also affecting the supply chain for construction itself. The NAIOP Research Foundation notes that companies are carrying higher inventories of building materials to buffer tariffs, but near-term shortages or shipping delays appear possible. For example, surcharges on Chinese-built ships and other fees have effectively reduced freight capacity to U.S. ports, which could slow shipments of steel and equipment and delay project timelines. Overall, industrial remains the strongest corner of the market. The consensus is that industrial and multifamily will lead any recovery in investment activity. However, many are factoring in a premium for uncertainty; one recent summary noted that tariffs were already “reducing the strength” of CBRE’s incoming business pipeline. In practice, transaction volumes have slowed slightly in Q1-Q2 as buyers and sellers price in trade risk. Still, global allocators with limited U.S. exposure are actively looking to enter the industrial sector. Outlook: Reshoring and Opportunities Ecommerce and manufacturing reshoring continues to underpin demand for warehouses and factories. Key drivers for this rebound include: Reshoring of manufacturing — A number of companies are moving production back to North America to avoid high tariffs and improve supply resilience. New factory and processing facility needs (like semiconductors, electric vehicles [EVs]), pharma and food processing) will drive fresh demand for industrial land and buildings. Nearshoring and trade deals — Even before the 2025 tariffs, firms were planning to source more regionally. A 2023 Accenture study found that by 2026 about 65% of companies intend to buy key inputs from regional suppliers, a significant increase from the current 38%. This shift reflects a broader trend of companies seeking to become more resilient to supply chain disruptions by diversifying their sourcing and production. Technological and Green transformations — With competition growing in industrial CRE, some landlords are repositioning assets with sustainability upgrades or flexible layouts. Energy-efficient space that provides automation, robotics, etc., remains attractive to cautious tenants during economic uncertainty. Conclusion The current uncertainty around tariffs has produced some challenges for industrial CRE — the possibilities of slow leasing growth, combined with rising construction costs, is adding risk to underwriting. However, there may still be reason for optimism. When the tariff situation is resolved, the underlying fundamentals — low vacancy in core regions, rising regional manufacturing, and e-commerce growth — are likely to lead to growth in the industrial market.
Leveraging artificial intelligence Trends in business is not new. Using machine learning (ML) and language processing across a range of functional areas and skill sets has been in practice for decades’ However, that traditional scope has had limitations, leaving more creative disciplines to human thinking. The emergence of generative AI has shifted our thinking—with use cases demonstrating that the automation of creativity and imagination could be a reality sooner than may have been anticipated . READ the rest of the story here: https://www2.deloitte.com/us/en/insights/industry/financial-services/generative-ai-in-real-estate-benefits.html
Commercial Real Estate Terms You Need to Know Buying or Leasing Commercial Real Estate is one of the biggest expenses incurred by your business. When leasing or buying commercial real estate, the vocabulary can be intimidating and confusing at first. Whether you need a small retail shop or a large warehouse, a basic understanding of common Commercial Real Estate industry terms used will help you better understand the process. If you are ready to dive into buying or leasing commercial real estate, I’ve outlined key commercial real estate terms that you’ll need to know. Becoming familiar with some basic terminology will untangle the confusing process and help you make informed decisions. First things first, what is Commercial Real Estate? Commercial Real Estate includes all buying, selling, and leasing of any Commercial property that is used or zoned for purposes such as Retail, Industrial, Office, Medical, Multifamily of 4 units or more, and Commercial Land. What are the different types of Leases? FSG- Full-Service Gross Lease: A Full-Service Gross lease includes the base rent and other building operating expenses, including janitorial service, utilities, maintenance and repairs, building insurance and property tax, and common area maintenance (CAM). None of the additional services are charged as additional rent. You pay a base rent amount only. MG – Modified Gross Lease: A Modified Gross lease is essentially the same as a FSG lease where the tenant pays base rent, but with an MG lease, the tenant also pays additional costs associated with the property such as: janitorial, a utility bill(s), or garbage. NNN – Triple Net Lease: A Triple Net Lease (NNN) is an agreement where the tenant pays their proportionate share of building expenses called Nets and include real estate taxes, building insurance, and Common Area Maintenance (CAM). The tenant pays for the above named monthly NNN expenses, plus base rent, plus utilities. Load factor: This is a calculation used in buildings that have common areas such as hallways, bathrooms, entry, common conference rooms to determine how much of the building these areas occupy. That percentage of the building is called a load factor. In buildings where tenants also use a common area, there is a load factor added onto the square footage of space they occupy. Commonly, 10% - 20% is added on to the “Usable Square Feet” (or actual) square footage to come up with a “Rentable Square Feet” (Usable + Load Factor). Load factors are not used in buildings that don’t have a common area such as Retail and Industrial spaces, but is more often found in Office or Medical space. The formula is: Usable Square feet x Load Factor = Rentable Square Feet For example, if a tenant measures 1,000 SF of space they are renting, but the load factor in the building is 15%, the tenant will pay rent for 1,150 SF (1,000 USF *1.15 = 1,150 RSF) to include their proportionate share of the common areas of the building. TI - Tenant Improvement: TI (tenant improvements) is the customized alterations made to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant. Tenant improvements (TI’s) are negotiated by your broker to determine how much the Landlord will pay or contribute, and how much the tenant will pay or contribute towards the TI. There are many variables that will determine how much the Landlord will pay including Landlord financial ability, asset type, lease length, as well as other factors the tenant is attempting to negotiate on such as free rent or reduced rent. 1st vs 2nd generation space: A 1st generation space is either a space that has not been built out for the specialty use, or is an empty shell without walls, drop ceilings, flooring, HVAC, electrical, or plumbing. 2nd generation space, or “2nd gen”, is commonly used to describe specialty use TI that is already built out by a previous tenant such as a restaurant, hair salon, or medical space. For tenants on a budget, it is often cost prohibitive to build out a specialty use TI into a 1st generation space, and is less expensive to find a 2nd generation space for specialty use tenants which only requires cosmetic improvements. Raw shell vs Vanilla shell: The term Raw shell refers to a space that consists of a concrete or dirt floor, wall studs but no insulation or sheet rock, exposed ceiling with or without electrical brought into the space, and often without plumbing or HVAC. This is often found in new construction buildings. The term Vanilla Shell refers a basic structure built out in the rental space. This typically includes sheetrock and taped walls ready to paint, electrical panel, a concrete floor, construction lighting, HVAC without duct work, stubbed plumbing but no fixtures. NOI: Net operating income (NOI) is a calculation used to analyze the profitability of income-generating Commercial real estate investments. NOI equals revenue minus all operating expenses that are not reimbursed to the landlord. CAP rate: A Cap rate (or Capitalization Rate), is a percentage measurement used to compare the rates of return on commercial real estate properties. Cap rates are calculated by dividing the property’s net operating income (NOI) from its property asset value. Parking Ratio: A parking ratio is the total ratio of the rentable square footage of a building to the total number of parking spots of that building. This ratio is a calculation of parking spots per 1,000 square feet of space leased. For example, a parking ratio of 1:1000 (one per thousand), this means that you will be allotted 1 parking stall for every 1,000 SF of space leased. In the example of a parking ratio of 3:1000, you would lease 1,000 SF of space, and you would be allotted 3 parking spaces. Vacancy Rate: The vacancy rate is the percentage of all available square footage in a Commercial rental property that is vacant or unoccupied at a particular time. On a larger scale, vacancy rates are used to measure the health of a rental market. Overall Vacancy rates of 10 – 12% indicates a healthy balance of Tenants looking for space, and vacant space available. If rates are over 12%, it becomes a Tenant market with more space available than tenants. Tenants often have more negotiating power in this environment. Vacancy rates under 10% are a Landlord’s market, where there are fewer options to lease than there are tenants. Landlords often have a negotiating advantage when vacancies are in the single digit range. Class A, B, C Buildings – Although there is not a clearly defined differentiation between A, B, and C properties, and it is rather subjective, the following is a lose delineation between the three types. Class A buildings are considered a top-tier property. These properties are typically newly constructed and/or well maintained, are multiple stories high with a retail component, and command top dollar whether leasing or purchasing. Class B buildings are a step-down from Class A buildings. They are typically older or and may have once been a Class A property but now have older surface materials. They could also be a smaller new construction building (under 4 stories) and without a retail component. Class C buildings are typically older, will show visible signs of deterioration and deferred maintenance. Melissa Johnson/KW Commercial is committed to providing our clients with world-class service, experience, and expert industry insights to help generate substantial returns. Our team’s collective success over the years has been built on this formula. We look forward to the opportunity to help you reach your commercial real estate buying, selling, or leasing goals.
Key takeaways: Monetary policy continues to loosen, we are in the relatively early stages of a rate-cutting cycle, and inflation has eased down to a more reasonable and manageable level. Recently established CRE trends including the growth of the digital economy, the work-from-home trend, the greening of CRE, and the rehabbing and repurposing of retail space will continue. There are long-term CRE investment opportunities in multifamily, data centers, industrial real estate and senior housing. There is an emerging opportunity in hospitality that should be viable through 2025, but is more cyclical in nature.
Across industries, the last year has been challenging for U.S. companies. Uncertainty around the election, steep inflation, and high interest rates have introduced instability and financial pressures that have taken their toll on the business landscape. As 2025 nears, things appear to be changing: Interest rate cuts are on the horizon, while the end of the election cycle may introduce greater market stability heading into the new year. Forecasted market stability doesn’t mean the new year will be without its challenges. A new administration and shifting market pressures mean real estate and construction leaders must act now to take advantage of new opportunities and confront persistent obstacles. Looking for the right information to prepare yourself for the year ahead? Read on to uncover our predictions for real estate and construction in 2025. BDO’s 2025 Real Estate and Construction Predictions
Is The Big Beautiful Bill a Game Changer for Commercial Real Estate? The Bill is largely a continuation of the tax cuts that were passed in 2017, with several expansions. The largest impacts on CRE stem from 3 major categories, how commercial real estate is taxed, how it is traded, and what kinds of developments and projects are pursued. Bonus Depreciation The newest version of the bill brings back 100% bonus depreciation. This provision had been phasing out, with owners only able to deduct 40% in 2025. If an owner wanted to conduct a $1 million renovation to an apartment complex in 2025, they could only deduct $400,000. With bonus depreciation back we will see more improvements that incentivize better buildings and a higher quality of life for users of commercial real estate, and more flexibility for investors that use a value-add strategy. This is a cornerstone of the tax bill for the CRE world and remains intact in both the House and Senate versions. Deductions First, the new legislation looks to make the QBI deduction permanent. It’s an “above-the-line” deduction, meaning you can take it whether you itemize or take the standard deduction. The current level is 20%, effectively making 20% of the owners’ properties tax-free. This increases the return owners see on their investments, while also supporting the income of businesses that lease and utilize commercial real estate. It will naturally free up capital for new development, business expansion, new hiring and property upgrades. The House bill actually proposes expanding the deduction to 23%. Second, an increase to the SALT deduction cap. The 2017 legislation capped this at $10,000, increasing the tax burden for many investors in the high-tax states. The new proposals increase this to $40,000, alleviating some of the pressure from the “double taxation” these investors are experiencing. This will free up capital for investors operating in the places that have been hardest hit by the pandemic, helping aid the rejuvenation of some of America’s most iconic cities and lowers the incentive for high-income residents to leave places like New York and Los Angeles. The Senate bill makes this cap increase temporary, but the House bill makes the increase permanent. Third, eliminate and replace the Pease Limitation. By permanently repealing Pease, the bill ensures that high-income individuals continue to get the full value of their itemized deductions. If Pease were to return, a $100,000 charitable donation would suddenly have less tax-saving power. This lowers the incentive to utilize deductions that are in place as an effort to incentivize certain financial behavior. Both bills replace the policy with a simpler and less costly limit on deductions. Opportunity Zones and Industrial Focus The bill proposes to expand and make permanent the opportunity zones policy from the 2017 bill. The new bill introduces a Qualified Rural Opportunity Fund (QROF). Investors who put money into a QROF receive a 30% basis step-up on their deferred capital gains after just five years, which is triple the standard 10% step-up for a regular opportunity zone investment. The new legislation also allows developers in rural zones to access the tax benefits of renovations at a lower threshold, lowering the financial requirement to qualify from 100% of investment cost to just 50% in rural opportunity zones. The bill also creates an entirely new category of assets called Qualified Production Properties. This provision states that when building a manufacturing plant or modern warehouse you can deduct the entire cost of the project immediately. This will incentivize industrial development and renovations that will help keep the United States as a leader in advanced manufacturing, creating more jobs in the industry and ensuring the manufacturing jobs that are in the U.S. are among the highest-paying and most productive in the world. This policy would do more to grow American manufacturing than any trade policy would. Other Important Factors 1031 Exchange Rules Preserving 1031 exchanges allows investors to shift strategies and transact freely in the marketplace. The missed economic activity from removing this provision would have massive implications for the government’s tax revenues. Estate Taxes This bill would raise the floor on the estate tax to $15 million. This promotes stability in ownership and allows them to continue investing in and improving their assets, rather than just preparing for a fire sale. The Low-Income Housing Tax Credit The proposal permanently increases the annual 9% Low-Income Housing Credit allocations to states and lowers the financing threshold for 4% credit deals. This makes it financially easier for developers to build affordable rental housing in any city across the country. Spending Provisions Beyond broad tax cuts, the bill’s spending provisions create highly targeted real estate impacts. The largest initiative dedicates nearly $47 billion to border security construction, fueling a concentrated real estate boom for industrial and rental properties in border states while having a negligible direct impact elsewhere. The bill also invests $12.5 billion to modernize the nation’s FAA air traffic control systems. This upgrade boosts efficiency at major airports, directly increasing the value and long-term viability of the critical logistics properties.
The U.S. commercial real estate sector is showing signs of improving stability as of July 2025, with particular resilience in industrial, multifamily and data center assets. Despite uncertainty stemming from trade policy and economic headwinds, leasing activity and investment interest are holding firm within select asset classes. Industrial real estate remains the strongest corner of the market, though signs of normalization have emerged. Q2 2025 industrial deal volume held steady at approximately $22.9 billion, flat compared to Q2 2024, after two quarters of intense growth. Vacancy rates in warehouses have climbed to around 7.1%, the highest reading since 2014. Oversupply from the pandemic era paired with cautious tenant behavior due to tariff-driven trade uncertainty has muted leasing activity. Speculative warehouse development has slowed, with just 60 million square feet completed in Q2, the lowest since early 2019. Yet demand for build-to-suit industrial facilities is resurging. Prologis launched over $900 million in new industrial projects in Q2, nearly triple last year’s pace, with 65% of those spaces pre-leased and full-year commitments raised to between $2.25 and $2.75 billion. Similarly, Brookfield closed a $428 million deal involving 53 older, high-occupancy warehouses between Houston, Dallas, Nashville and Atlanta, aiming to raise rents selectively as leases expire. Multifamily investments remain strong heading into mid 2025. With household formation increasing and homeownership costs rising, renters continue to fuel demand. Rents are stabilizing and occupancy rates are improving despite elevated interest rates and robust new supply. Analysts describe this sector as the most preferred among CRE investors this year. Read Also: https://rentmagazine.com/ai-and-robotics-reshape-commercial-real-estate-operations/ The office sector remains bifurcated. Lower-tier assets continue struggling while Class A office buildings in major urban cores such as Manhattan, Washington D.C. and Miami are enjoying steady leasing demand. Leasing tours and deal inquiries remain elevated for high-end office space despite broader economic uncertainty. CBRE anticipates vacancy stabilization and modest upticks in occupancy and rents in the most attractive office segments. Data center properties continue to benefit from surging demand tied to cloud services, AI infrastructure and enterprise IT growth. Supply remains insufficient to match demand, making these assets a standout within CRE portfolios. AI expansion is fueling consumption of high-density computing, triggering new data center construction, though developers are grappling with energy, connectivity and land constraints. AI and proptech tools are now widely recognized as core to CRE decision-making. From underwriting and predictive analytics to tenant management and energy optimization, AI is reshaping workflow across asset classes. A recent Morgan Stanley survey finds 32% of REITs increasing AI exposure, with nearly 37% of CRE tasks estimated to be automated, boosting efficiency and risk mitigation. AI-driven site selection tools are enabling developers to pinpoint locations for data centers and industrial assets more accurately by layering logistics, economics, labor and infrastructure data. Leading firms now view AI not just as a novelty but as a core competency shaping real estate strategy. The outlook for major asset classes continues to diverge. Industrial real estate is stabilizing from pandemic-era overbuilding but remains healthy for build-to-suit developments. Multifamily remains in high demand with strong rental fundamentals. Class A office assets in top-tier urban markets show resilience. Data centers continue to outperform due to persistent undersupply and rising digital infrastructure needs. Overall, commercial real estate is transitioning into a more balanced era. Experts foresee modest growth in investment volume and general stabilization across sectors in the second half of 2025, even if interest rates remain elevated. Challenges remain—from global trade uncertainty and tariff risks to inflation and supply imbalances—but greater predictability in underwriting and expanded use of technology are helping investors navigate an evolving landscape. July 2025 finds U.S. commercial real estate on firmer footing. Industrial assets are adjusting to oversupply through build-to-suit demand. Multifamily continues to attract investor interest. Class A offices in key cities retain appeal, and data centers are thriving under infrastructure constraints and digital growth. Across the board, AI and automation are helping firms manage risk, optimize returns and respond to changing market dynamics.
Late last year, many were predicting a new growth cycle for the U.S. Industrial Commercial Real Estate (CRE) market. For example, in December when CBRE published its 2025 U.S. Real Estate Market Outlook, they predicted that the U.S. industrial market would enter a new cycle in 2025 with a return to pre-pandemic demand drivers. They said industrial occupiers would start focusing on longer-term strategies to improve warehouse efficiency and ensure supply chain resiliency. And that demand for newly constructed space would drive up the vacancy rate of older buildings. At that time, few anticipated the level of uncertainty that would ensue in the wake of changing U.S. economic and trade policies. As of May 2025, the U.S. and China had paused their retaliatory tariffs for 90-days, leaving a 30% levy that the U.S. is now imposing on Chinese goods. However, businesses and investors must contend with uncertainty about whether the truce will last. But this situation is only part of a broader scenario in which dozens of other countries await news from the White House regarding revised tariff rates that will follow the current 90-day pause. The result is already reshaping the global supply chain and logistic networks, starting with the slowing flow of goods into the U.S. The Port of Los Angeles, for instance, has seen a 35% drop in arriving cargo vessels as of the 2nd week in May 2025 vs. the same week a year earlier. The disruption goes beyond the here and now; the inability to plan into the months ahead makes the situation at the ports a guessing game for labor and planning, including the scheduling of dockworkers, heavy equipment operators, and trucking services. According to Gene Seroka, executive director of the Port of Los Angeles, “As far as forecasting, with the whipsaw effect of information that’s been coming out of Washington — the reprieve of 90 days, the changes with electronics and auto parts, and maybe some retail in the middle of that — it’s really hard to forecast.” As disruptions trigger a ripple effect across industries worldwide, the global supply chain is positioning itself for major transformation. With markets in flux, the National Association for Industrial and Office Parks (NAIOP) reports that many companies are pausing investment and deferring major decisions, including whether and where to lease industrial space. At this point, experienced CRE industry professionals must rely on their knowledge — guided by the cyclical history of CRE, day-by-day data analysis, the latest intelligence, and some instinct. Let’s take a look at just some of the ways this may all unfold — and what it could mean specifically for industrial CRE. Industrial Leasing and Tenant Demand The industrial leasing market has been steady but cautious as tenants digest the tariff news. Key leasing trends include: Lease renewal over expansion — Many companies have delayed new warehouse expansions or relocations, opting instead to renew existing space until tariff outcomes are clear. CBRE recently reported that industrial construction slowed while industrial leasing held steady at about 180M square feet in Q1 of 2025. Rise of third-party logistics (3PL) demand — Amid trade policy uncertainty, CBRE sees some industrial occupiers outsourcing to 3PL providers. As more businesses rely on them, these providers will, in turn, take on a larger share of leasing activity. Vacancy tick-up — Even with solid leasing deals, overall vacancy has crept upward — due in part to new supply hitting the market. CBRE reported a 20 basis-point rise in national vacancy to about 6.3% in Q1 2025 — the highest level since 2014. Potentially slower economic growth would also weaken fundamentals across property types, leading to higher vacancy rates, and be a headwind for investment activity. However, this may be partially offset by lower long-term interest rates and cheaper debt costs. Modest net absorption — With some tenants on hold, net absorption is subdued. For example, CBRE cites just 23.3 million square foot of positive net absorption in Q1 2025, which is modest compared to earlier peaks. In summary, leasing activity so far in 2025 is underpinned by tentative demand: occupiers are holding off on major expansions, while 3PLs and domestic distributors lead tenant activity in the interim. Construction Activity and Costs Tariffs are also crimping the development pipeline and construction budgets for Industrial, with the result being a rise in material prices and project delays: Higher material costs — New levies on steel, lumber, equipment and other inputs will increase construction expenses. CBRE estimates that the tariffs announced in April 2025 could inflate overall commercial construction costs by roughly 5%. Projects on hold and a shrinking pipeline — Faced with cost uncertainty, many developers are pausing or scaling back new projects. Groundbreaking of some developments may be put off as builders re-evaluate feasibility under higher-cost scenarios. JLL notes that U.S. industrial projects under construction totaled about 253 million square foot by Q1 — roughly 30% less than a year earlier and the lowest pipeline level since 2015. According to CBRE, in Q1 alone just 64.6M square foot of new industrial space was completed, the weakest quarterly delivery tally since 2018. In many markets, construction starts are near decade-lows as speculative projects are deferred. Supply chain delays — Tariffs and trade disruptions are also affecting the supply chain for construction itself. The NAIOP Research Foundation notes that companies are carrying higher inventories of building materials to buffer tariffs, but near-term shortages or shipping delays appear possible. For example, surcharges on Chinese-built ships and other fees have effectively reduced freight capacity to U.S. ports, which could slow shipments of steel and equipment and delay project timelines. Overall, industrial remains the strongest corner of the market. The consensus is that industrial and multifamily will lead any recovery in investment activity. However, many are factoring in a premium for uncertainty; one recent summary noted that tariffs were already “reducing the strength” of CBRE’s incoming business pipeline. In practice, transaction volumes have slowed slightly in Q1-Q2 as buyers and sellers price in trade risk. Still, global allocators with limited U.S. exposure are actively looking to enter the industrial sector. Outlook: Reshoring and Opportunities Ecommerce and manufacturing reshoring continues to underpin demand for warehouses and factories. Key drivers for this rebound include: Reshoring of manufacturing — A number of companies are moving production back to North America to avoid high tariffs and improve supply resilience. New factory and processing facility needs (like semiconductors, electric vehicles [EVs]), pharma and food processing) will drive fresh demand for industrial land and buildings. Nearshoring and trade deals — Even before the 2025 tariffs, firms were planning to source more regionally. A 2023 Accenture study found that by 2026 about 65% of companies intend to buy key inputs from regional suppliers, a significant increase from the current 38%. This shift reflects a broader trend of companies seeking to become more resilient to supply chain disruptions by diversifying their sourcing and production. Technological and Green transformations — With competition growing in industrial CRE, some landlords are repositioning assets with sustainability upgrades or flexible layouts. Energy-efficient space that provides automation, robotics, etc., remains attractive to cautious tenants during economic uncertainty. Conclusion The current uncertainty around tariffs has produced some challenges for industrial CRE — the possibilities of slow leasing growth, combined with rising construction costs, is adding risk to underwriting. However, there may still be reason for optimism. When the tariff situation is resolved, the underlying fundamentals — low vacancy in core regions, rising regional manufacturing, and e-commerce growth — are likely to lead to growth in the industrial market.
Leveraging artificial intelligence Trends in business is not new. Using machine learning (ML) and language processing across a range of functional areas and skill sets has been in practice for decades’ However, that traditional scope has had limitations, leaving more creative disciplines to human thinking. The emergence of generative AI has shifted our thinking—with use cases demonstrating that the automation of creativity and imagination could be a reality sooner than may have been anticipated . READ the rest of the story here: https://www2.deloitte.com/us/en/insights/industry/financial-services/generative-ai-in-real-estate-benefits.html
Commercial Real Estate Terms You Need to Know Buying or Leasing Commercial Real Estate is one of the biggest expenses incurred by your business. When leasing or buying commercial real estate, the vocabulary can be intimidating and confusing at first. Whether you need a small retail shop or a large warehouse, a basic understanding of common Commercial Real Estate industry terms used will help you better understand the process. If you are ready to dive into buying or leasing commercial real estate, I’ve outlined key commercial real estate terms that you’ll need to know. Becoming familiar with some basic terminology will untangle the confusing process and help you make informed decisions. First things first, what is Commercial Real Estate? Commercial Real Estate includes all buying, selling, and leasing of any Commercial property that is used or zoned for purposes such as Retail, Industrial, Office, Medical, Multifamily of 4 units or more, and Commercial Land. What are the different types of Leases? FSG- Full-Service Gross Lease: A Full-Service Gross lease includes the base rent and other building operating expenses, including janitorial service, utilities, maintenance and repairs, building insurance and property tax, and common area maintenance (CAM). None of the additional services are charged as additional rent. You pay a base rent amount only. MG – Modified Gross Lease: A Modified Gross lease is essentially the same as a FSG lease where the tenant pays base rent, but with an MG lease, the tenant also pays additional costs associated with the property such as: janitorial, a utility bill(s), or garbage. NNN – Triple Net Lease: A Triple Net Lease (NNN) is an agreement where the tenant pays their proportionate share of building expenses called Nets and include real estate taxes, building insurance, and Common Area Maintenance (CAM). The tenant pays for the above named monthly NNN expenses, plus base rent, plus utilities. Load factor: This is a calculation used in buildings that have common areas such as hallways, bathrooms, entry, common conference rooms to determine how much of the building these areas occupy. That percentage of the building is called a load factor. In buildings where tenants also use a common area, there is a load factor added onto the square footage of space they occupy. Commonly, 10% - 20% is added on to the “Usable Square Feet” (or actual) square footage to come up with a “Rentable Square Feet” (Usable + Load Factor). Load factors are not used in buildings that don’t have a common area such as Retail and Industrial spaces, but is more often found in Office or Medical space. The formula is: Usable Square feet x Load Factor = Rentable Square Feet For example, if a tenant measures 1,000 SF of space they are renting, but the load factor in the building is 15%, the tenant will pay rent for 1,150 SF (1,000 USF *1.15 = 1,150 RSF) to include their proportionate share of the common areas of the building. TI - Tenant Improvement: TI (tenant improvements) is the customized alterations made to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant. Tenant improvements (TI’s) are negotiated by your broker to determine how much the Landlord will pay or contribute, and how much the tenant will pay or contribute towards the TI. There are many variables that will determine how much the Landlord will pay including Landlord financial ability, asset type, lease length, as well as other factors the tenant is attempting to negotiate on such as free rent or reduced rent. 1st vs 2nd generation space: A 1st generation space is either a space that has not been built out for the specialty use, or is an empty shell without walls, drop ceilings, flooring, HVAC, electrical, or plumbing. 2nd generation space, or “2nd gen”, is commonly used to describe specialty use TI that is already built out by a previous tenant such as a restaurant, hair salon, or medical space. For tenants on a budget, it is often cost prohibitive to build out a specialty use TI into a 1st generation space, and is less expensive to find a 2nd generation space for specialty use tenants which only requires cosmetic improvements. Raw shell vs Vanilla shell: The term Raw shell refers to a space that consists of a concrete or dirt floor, wall studs but no insulation or sheet rock, exposed ceiling with or without electrical brought into the space, and often without plumbing or HVAC. This is often found in new construction buildings. The term Vanilla Shell refers a basic structure built out in the rental space. This typically includes sheetrock and taped walls ready to paint, electrical panel, a concrete floor, construction lighting, HVAC without duct work, stubbed plumbing but no fixtures. NOI: Net operating income (NOI) is a calculation used to analyze the profitability of income-generating Commercial real estate investments. NOI equals revenue minus all operating expenses that are not reimbursed to the landlord. CAP rate: A Cap rate (or Capitalization Rate), is a percentage measurement used to compare the rates of return on commercial real estate properties. Cap rates are calculated by dividing the property’s net operating income (NOI) from its property asset value. Parking Ratio: A parking ratio is the total ratio of the rentable square footage of a building to the total number of parking spots of that building. This ratio is a calculation of parking spots per 1,000 square feet of space leased. For example, a parking ratio of 1:1000 (one per thousand), this means that you will be allotted 1 parking stall for every 1,000 SF of space leased. In the example of a parking ratio of 3:1000, you would lease 1,000 SF of space, and you would be allotted 3 parking spaces. Vacancy Rate: The vacancy rate is the percentage of all available square footage in a Commercial rental property that is vacant or unoccupied at a particular time. On a larger scale, vacancy rates are used to measure the health of a rental market. Overall Vacancy rates of 10 – 12% indicates a healthy balance of Tenants looking for space, and vacant space available. If rates are over 12%, it becomes a Tenant market with more space available than tenants. Tenants often have more negotiating power in this environment. Vacancy rates under 10% are a Landlord’s market, where there are fewer options to lease than there are tenants. Landlords often have a negotiating advantage when vacancies are in the single digit range. Class A, B, C Buildings – Although there is not a clearly defined differentiation between A, B, and C properties, and it is rather subjective, the following is a lose delineation between the three types. Class A buildings are considered a top-tier property. These properties are typically newly constructed and/or well maintained, are multiple stories high with a retail component, and command top dollar whether leasing or purchasing. Class B buildings are a step-down from Class A buildings. They are typically older or and may have once been a Class A property but now have older surface materials. They could also be a smaller new construction building (under 4 stories) and without a retail component. Class C buildings are typically older, will show visible signs of deterioration and deferred maintenance. Melissa Johnson/KW Commercial is committed to providing our clients with world-class service, experience, and expert industry insights to help generate substantial returns. Our team’s collective success over the years has been built on this formula. We look forward to the opportunity to help you reach your commercial real estate buying, selling, or leasing goals.
Key takeaways: Monetary policy continues to loosen, we are in the relatively early stages of a rate-cutting cycle, and inflation has eased down to a more reasonable and manageable level. Recently established CRE trends including the growth of the digital economy, the work-from-home trend, the greening of CRE, and the rehabbing and repurposing of retail space will continue. There are long-term CRE investment opportunities in multifamily, data centers, industrial real estate and senior housing. There is an emerging opportunity in hospitality that should be viable through 2025, but is more cyclical in nature.
Across industries, the last year has been challenging for U.S. companies. Uncertainty around the election, steep inflation, and high interest rates have introduced instability and financial pressures that have taken their toll on the business landscape. As 2025 nears, things appear to be changing: Interest rate cuts are on the horizon, while the end of the election cycle may introduce greater market stability heading into the new year. Forecasted market stability doesn’t mean the new year will be without its challenges. A new administration and shifting market pressures mean real estate and construction leaders must act now to take advantage of new opportunities and confront persistent obstacles. Looking for the right information to prepare yourself for the year ahead? Read on to uncover our predictions for real estate and construction in 2025. BDO’s 2025 Real Estate and Construction Predictions
